The SEC staff has issued a no-action letter, available here, regarding relief from mixed and shared funding restrictions under Rules 6e-2(b)(15) and 6e- 3(T)(b)(15) under the Investment Company Act of 1940 ("1940 Act) pertaining to variable life insurance policies ("the Variable Life Rules").
In the letter, the staff says that it would not recommend enforcement action to the Commission against an underlying fund, its investment adviser, a separate account investing in the underlying fund, and the sponsoring life insurance company of any such separate account ("the companies"):
- for violations of the terms and conditions of existing SEC exemptive orders granted to the companies,
- provided that the companies will instead comply with Sections 9(a) ("bad boy" limitations), 13(a), and 15(a) and (b) (voting requirements) of the 1940 Act.
The matter arose in a situation where an underlying fund needed further exemptive relief from the Variable Life Rules to have its shares held by socalled 529 plans. The Variable Life Rules restrict the types of purchasers that can hold shares of underlying funds that are investment options under variable life policies. Neither the Variable Life Rules nor the requestors' existing SEC exemptive orders permit separate accounts to invest in an underlying fund whose shares are held by 529 plans.
The SEC staff letter, in effect, permits an underlying fund to offer and sell its shares to 529 plans without relief under an SEC exemptive order.
By way of background, the SEC staff has informed industry groups that it:
- intends, in the future, to recommend that the Commission amend the Variable Life Rules to update them to reflect legislation and industry practice;
- believes that the conditions imposed by the Commission for exemptive relief in the past are no longer related to the relief;
- understands that the industry has not availed itself of the exemptions afforded by the Variable Life Rules and therefore doesn't need the exemptions; and
- under these circumstances, would prefer not to have the Commission expand the exemptive relief that Commission orders have granted.
The SEC staff did not say so expressly, but the letter may mean that the SEC staff will recommend that the Commission no longer entertain routine applications for exemption from the Variable Life Rules.
Jorden Burt's Request for No-Action Letter is available here.